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Economics

You are the owner of a local Honda dealership. Unlike other dealerships in the area, you take pride in your "no-haggle" sales policy. Last year, your dealer-ship earned record profits of $1.5 million. In your market, you competeagainst two other dealers, and the market-level price elasticity of demand formidsized Honda automobiles is -1.3. In each of the last five years, your deal-ership has sold more midsized automobiles than any other Honda dealershipin the nation. This entitled your dealership to an additional 30 percent off themanufacturer's suggested retail price (MSRP) in each year. Taking this intoaccount, your marginal cost of a midsized automobile is $12,000. What priceshould you charge for a midsized automobile if you expect to maintain yourrecord profits?

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